Thursday, September 11, 2014

Value Investing Congress Notes: New York 2014 (Cooperman, Smith, Spier, Left & More)

We're posting up notes from the Value Investing Congress in New York that just ended.  Click the links below to go to each speaker's presentation

Value Investing Congress Notes: New York 2014

Lee Cooeperman (Omega Advisors): Are equities still the best house in the neighborhood? 

Carson Block (Muddy Waters Research): Short

Andrew Left (Citron): Short Zillow/Trulia

Guy Spier (Aquamarine): Bull case on POSCO

Jeff Smith (Starboard Value): 4 case studies 

Sahm Adrangi (Kerrisdale Capital): Long Via Varejo

Adam Crocker (Metropolitan Capital): Long Groupe FNAC, Molina Healthcare

Whitney Tilson (Kase Capital): Update on 2 shorts and 1 new short idea

Alex Roepers (Atlantic): 5 long ideas

David Hurwitz (SC Fundamental): Long Samho Development, KTcs Corp

Guy Gottfried (Rational Investment Group): 2 long ideas

Marcelo Lima (Heller House): Long Casino Guichard Perrachon

Amitabh Singhi (Surefin Investments): Plays on India

Cliff Remily (Northwest Capital): Pitch on Subsea 7

John Lewis (Osmium Capital): 2 ideas: E-plus and Rosetta Stone

SumZero Contest Winner: Long Samsung

Thanks to Nick Mazing from Ampera Capital for taking notes on day 2.

Carson Block's Value Investing Congress Presentation: Short (WBAI)

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Carson Block of Muddy Waters Research who talked about short selling/fraud and presented a new short idea: (WBAI). His presentation was called "Avoiding Blue Pill Investing."

Carson Block's Value Investing Congress Presentation

• Obvious reference to The Matrix – some investors tend to “take the blue pill” during bullish times or  in other words, willfully ignore negative signs. Carson says if you have taken the blue pill, you need   to be prepared to unwind quickly when the inevitable mean reversion rears its head

Many things tilt the playing field against investors:

o Often short-term focused. To remedy, check the proxy and remember the absolute dollar  value of comp. If a CEO can earn $30mm in 3 years, that's short term any way you slice it.  
o CEOs tend to be charismatic, and the more successful a CEO is, the less willing he/she is to   being held accountable 
o Solution: management is better seen, not heard. Reading transcripts is better than listening   to calls.  
o Compare transcripts chronologically, looking for disappearing initiatives and changes in   language. Are questions systematically evaded? If so, which ones? Are questions often the   same each quarter? If so, ask yourself if sell side seems too close to management to ask the   hard questions 
o Insider selling is also very significant. 10b-5 plans are smart because they give management   cover/deniable plausibility. They can also lock in value of their shares without actually selling

Board of Directors
o Often have a symbiotic relationship with CEOs 
o Insulated from negligence liability by BJR, insulated from other liability by D&O insurance 
o Many directors view directorships as perquisites, not responsibilities.  
o Independent investigations often “shambolic”

o Never forget that lawyers represent the interest of their clients, or the people who hire and  pay them 
o Prestigious law firms are a surprisingly effective fig leaf and are great at writing   indecipherable prose. If you ever find yourself reading a passage in a filing and, halfway   through, realize that you didn’t understand anything, that is probably on purpose 
o Attorney-client privilege hides acts of corporate wrongdoing and  
o "Fraud lawyers are eternal" - John Hempton

o Auditors are completely misunderstood by the investing community. Like lawyers, they  represent the interest of their clients (the people who pay them) 
o Auditing is a profession that rewards failure. Why? Whenever a company is found to   potentially have serious fraud, the accounting issues lock the auditor to its accounting firm   “for life” 
o Reason: Say you're an accounting firm and a partner had a blowup. You can’t throw   them out because you immediately worry about other clients that they've audited. The   accounting firm has imperfect information, doesn’t know when they'll get sued and for   what. Therefore they want to keep these bad actors around to exculpate the firm from   liability 
o Audit is also a profession that fights accountability. The PCOB is trying to keep auditors’   names from being disclosed on publicly filed documents 
o Audits aren't designed to detect fraud. Instead they presume that documents not forged   and that management is telling the truth 
o The most important function of the auditor is cash confirmation at year/quarter. A lot of this   is gruntwork that is done by juniors. As investors we have no idea how thorough the cash  confirmation was and it tends to be more cursory. This isn't just a China problem either

o The bank’s imperative is to sell financial product. Analysts aren’t rewarded for skepticism.  Like audit work, junior bankers tend to do the key due diligence tasks

Market Research Firms
o Can actually be a great source for short ideas. The SEC should investigate 
o S1 filings often cite market research that is fabricated. Companies pay for it, provide the   data, and feed the research house people that they should talk for their “research” 
o Research houses are provide people to talk to. No disclaimer.  
o Tianhe short idea – Carson says they aren’t in it, but Anonymous Analytics made a good   point that the research firm that the company used completely fabricated the data

Thoughts on Chinese companies:
• China is to stock fraud as Silicon Valley is to tech 
• Country is run as a kleptocracy... should we be surprised that companies are as well?  
• Investors have become complacent once again about the risks 
• No fraudster from China has ever been meaningfully punished for defrauding North American   investors. Carson doesn't blame the Chinese for this because US and Chinese courts don't recognize   judgments against each other. The US simply has no jurisdiction  
• VIEs: owner of listcos don't even own the operating company. Look at tax rates for proof

Recent Lessons Learned From Shorts: RAX, BLNX.LN, X Group (Eike Batista's fallen empire)
• RAX: Investors were lost in the word 'cloud' when RAX was at its core a plain old internet host with  no magic to the business. Larry Ellison ranted on the stupidity of the market’s obsession with the   cloud in 2009, saying that the cloud is just a computer. RAX CEO was also selling an image of being a   technologist (went as far as to wear Google Glass to speaking panels... looked ridiculous) 
• BLNX.LN: Harvard Professor Ben Edelman is a bit of an “internet sheriff” and good to follow. He   published a report on Blinkx, alleging that they were defrauding customers. Muddy Waters dug   deeper and saw evidence of the same 
• X Group: Batista was obsessed with passing Carlos Slim to be wealthiest person in the world. Carson   saw him speak in 2011 and said he was very nationalistic and claimed that his group of companies   was what Brazil deserves. Q&A was also a joke. One questioner went as far as to ask what he would  do if he were president

New Short: (WBAI)

• Sells online sports lotto tickets with a $1.2bn market cap and 37x P/E 
• Market expects that WBAI will be explicitly authorized to sell sport lotto tickets but that will only   open up to more competition 
• is selling on behalf of provincial lotteries. gets 10-11% fees which are far in excess   of the 5-6% that others are getting in the industry 
• When the new regulatory regime is implemented, fees will come down to 4% 
• Chinese Ministry of Finance also prohibits cross-border sales of these tickets and it seems like seems   like is selling cross-border, particularly in Jianxi province 
• If that’s not enough, has been playing the lottery themselves and actually won $2mm from   playing the lottery in 2013 (50% of pretax income)
• Major red flag – employee bank accounts are used to collect winnings. claims that you  have to be a natural person to get paid and this is why they set it up this way. Carson thinks this   makes it extremely easy to commit fraud 
• Another flag – discrepancy between claimed mobile downloads and downloads as indicated on 3rd  party sites

Be sure to check out the rest of the Value Investing Congress presentations here.

Sahm Adrangi's Value Investing Congress Presentation on Via Varejo

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Sahm Adrangi of Kerrisdale Capital who presented the long case for Via Varejo (VVAR11).

Sahm Adrangi's Value Investing Congress Presentation

• Theme: looking abroad. US up 41% since Jan 1, 2013. Trailing P/E expanded from 15x to 19x.  Meanwhile int'l markets stalled and valuations are depressed 
• Likes Russia especially. Up +6% in same period and trades at 7x P/E. Also BOVESPA (+6%, and 10x P/  E) and Hang Seng (+12%, 9.5x P/E) 
• Side idea: Sberbank. 5.4x P/E, 0.9x TBV. Weathered the Russian Ruble crisis of ‘87, oil crash of ‘09,  and 2014 sanctions today. During period of extreme distress, Russians tend to revert their deposits  back to their most venerable banking institution. Investors are focused on NIM growth, but the edge is in future fee income

Long: Via Varejo (VVAR11)  

• Brazil’s largest electronics retailer and leader in home furnishing and household durables. Kerrisdale   thinks Brazil's emergent middle class positions Via Varejo for multi-year growth 
• Opportunity exists due to broken IPO (R$23.00 IPO price vs. initial range of R$25.60 – R$33.60) and   due to capital pressures at the government level 
• Hidden value: Via Varejo owns 23% stake in CNova, a rapidly growing ecommerce retail platform   with €2.9bn revenue in 2013

Via Varejo: 

• Leading brands include Casas Bahia (611 stores) Ponto Frio (361 stores) and CNova (ecommerce) 
• Casas Bahia is Brazil’s most valuable retail brand name. Management plans to expand footprint by   7% per year in 2015 and 2016. Kerrisdale thinks reinvesting capital for these stores presents a high   internal ROE opportunity 
• Advantage comes from scale. Distribution network is 3.5x larger than peers, sells 3x more than next   largest peer and uses distribution centers that allows it to be lowest cost-provider 
• Household durables are under owned by Brazil's emergent and middle class. The average Brazilian   doesn't own a washing machine, computer, flatscreen tv, etc. 
• Due to high import taxes on electronics, English speakers in high income brackets tend to buy high   cost goods abroad. Casas Bahia's target audience of mid to low income groups are less likely to buy   offshore and are therefore more captive
• Important note: Via Varejo supports sales by extending credit to customers and this serves as a  profit center for Via Varejo 
o 15% of sales are financed by their balance sheet 
o Kerrisdale claims Varejo’s credit underwriting is a core competency as they maintain a   decades-old database of repeat customers


• CNova is result of merger between Nova Pontocom (Brazil’s #2 ecommerce company behind B2W)   and CDiscount (France’s #1 ecommerce company) 
• Pending IPO: CNova filed an F-1 registration statement on June 6th 
• Amazon has had trouble expanding in Brazil due to lack of infrastructure. They just stared shipping   goods in Feb’14  
• Kerrisdale cited Brazilian ecommerce retail penetration of 5% vs. 15% in US – odd because the next   presenter cited 6% for US 
• Tiger Global invested $500mm in competitor B2W to restructure balance sheet and fund   infrastructure buildout


• Trades at 13.6x unlevered LTM earnings, 10.5x 2015 P/E including CNova. When you strip out CNova   at 2x revenue, multiple falls to 7x 2015 P/E 
• Price target: R$40 vs. R$25 today

Be sure to check out the rest of the Value Investing Congress presentations here.

Guy Gottfried's Value Investing Congress Presentation on Holloway Lodging & Perpetual Energy

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Guy Gottfried of Rational Investment Group who presented 2 long ideas: Holloway Lodging Corp (HLC) and Perpetual Energy (PMT).

Guy Gottfried's Value Investing Congress Presentation

Long: Holloway Lodging Corp (HLC) – all references in CAD  

• $5/share, $100mm mkt cap, 3% yield. Gottfried suggested this at VIC in Omaha 
• Stock collapsed following a dividend suspension and dilutive debt recap. Gottfried thinks investors   are still feeling burned by the name. It’s also small, holds no conference calls and is only covered by   one sell-side firm 
• Substantial insider ownership and widespread buying (9.5% of shares since May) 
• Holloway is cheap on a standalone basis (8.4x P/FCF) but has since undergone a transformational   acquisition by acquiring Royal Host and doubling its size in the process. Thinks it’s priced at 5x FCF   without assuming any cost synergies 
• Hidden assets / low-hanging fruit: under-earning hotels, renovations, redevelopments, franchise   rights

Long: Perpetual Energy (PMT)

• Oil and gas company with $300mm mkt cap, $664mm EV 
• Extremely cheap, management has substantial ownership and record of good capital allocation, and   upcoming catalysts will highlight valuation discount and eliminate doubts about balance sheet 
• Opportunity exists because it is smaller than peers, is mistakenly perceived as being overleveraged   and has hidden assets in non-producing wells 
• Controlled by Riddell family. Gottfried has followed this family into several deals 
• For many E&Ps, equity offerings come as second nature. These tend to be done at non-accretive   prices. Gottfried likes that PMT didn’t issue equity when the stock tanked during natural gas   downturn. Instead they sold assets to pay down debt

Be sure to check out the rest of the Value Investing Congress presentations here.

Amitabh Singhi's Value Investing Congress Presentation on India

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Amitabh Singhi of Surefin Investments who talked about India and investment plays there.

Amitabh Singhi's Value Investing Congress Presentation

• India is an elephant: large and frustratingly slow, but when it moves it really moves. As India gets  less socialistic, people will become more capitalist and consumer-focused.  
• Signs of progress over time: illiteracy rate for women + GDP: 
o 1951: 147mm women, 91% illiteracy, $21bn GDP 
o 1970: 222mm women, 78% illiteracy, $57bn GDP (2x in 20 years) 
o 1990: 342mm women, 61% illiteracy, $293bn GDP 
o 2010: 503mm women, 35% illiteracy, $1,289bn GDP 
o 2025: 620mm women, 17% illiteracy, $6,000bn GDP – his predicion  
• 2010 to 2014 was a frustrating time characterized by bureaucracy, resulted in $2tn GDP 3 years in a   row

• Catalyst: 2014 election of Modhi 
o Out of 834mm eligible to vote, 553mm voted (66% vote rate) 
o Since 84 no single party got an absolute majority. India has always had a coalition with many parties and interests.  To have a majority of the lower house in one   party is the first time in 30 years
o India is famously awful at executing plans. Modhi is fanatical about tracking progress and the execution of plans 
• The money that will be made in India will be made where there are maximum problems today.   Singhi points to housing as an obvious area for improvement. He estimates 30mm housing shortage   today, increasing by 4mm homes each year 

Idea #1: ARO Granite

• India has a monopoly of certain colors of granite 
• ARO is India’s largest granite processor with a 20% 10yr average ROE before the US real estate bust.   Since then, average ROEs have hovered around 10%. He thinks ARO’s ROEs will expand to 15% as   they do more value-added products and tap the domestic market 
• Negative: Lots of working capital. In 2006-2009 working capital cycle elongated and the company   uses short-term debt for its working capital.  
• $13mm market cap, $50mm sales, priced at 0.5x P/BV and 4x P/E

Idea #2: Tata Motors Differential Voting Rights (DVRs)

• Tata motors issued DVRs in 2009 after buying Jaguar because it didn't want to dilute voting rights 
• Each DVR has 1/10th voting right, slightly higher dividend 
• Tata owned 80% of these DVRs but has been selling and currently owns less than 1% of them 
• Discount to NAV bounced around 40% but is currently at 28%... buy DVRs and short Tata to close the discount

Idea #3: Tata Investment Corporation

• Tata Group has its hands in every part of the Indian economy... Singhi actually thinks it’s a better   proxy for the economy than the SENSEX 
• Tata Investment Corporation’s post-tax liquidation value is $840mm vs. $500mm mkt cap (40%   discount). In bull markets this discount narrows and vice versa 
• You get paid to wait with a high dividend yield

Be sure to check out the rest of the Value Investing Congress presentations here.

Marcelo Lima's Value Investing Congress Presentation on Casino Guichard Perrachon

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Marcelo Lima of Heller House who presented the case for Casino Guichard Perrachon (EPA:CO).

Marcelo Lima's Value Investing Congress Presentation

Marcelo noted that bricks and mortar retail plays were clearly a common theme this year.  Marcelo is also pitching a retailer led by an owner-operator with multiple ways to invest in the system.  His presentation also involves Kerrisdale's Via Varejo, which is 26% owned by Casino Guichard Perrachon SA (EPA:CO).

Long: Casino Guicard Perrachon SA (EPA:CO)  

• Casino is seen as a French group. France looks like 65% of sales, while Brazil, Colombia and Thailand   come in at 22%, 7%, and 6%, respectively
• What really matters is the look-through earnings. On that basis, 65% of earnings are from ex-France
• €10bn market cap even though subsidiary holdings alone totals €11.4bn. This implies French   business has an implied value of -€1.1bn
• It wasn’t always this way. In 2007, half of the parent’s value came from subs
• Plays to megatrend of the rise of the consumer class in emerging countries
• Favorable demographics – urbanization trend, young consumer base, expansion in GDP per capita
• Potential catalyst: October elections in Brazil
• Controlling shareholder is Jean Charles Naouri, a quiet 65-year old polymath/genius. He was seeded  by David Rothschild and used a vehicle called Euris to take a controlling stake in companies

Background on Naouri:
• Naouri understood early on that retail was moving away from mass commerce and toward “long   tail” or precision commerce
• Naouri tailored his company’s offerings to customers accordingly and acquired land for future retail   that would benefit from proximity and convenience at both high and low ends of the spectrum
• Naouri realized that growth in France would be tough so expanded abroad in contrarian fashion   (Thailand, Brazil)

Casino’s strategy:
• Dual retail/real estate strategy. Every time Casino builds a big store in France or abroad, it builds a   shopping center around it. This creates rental income from tenants and is a hedge as retail trends   move away from big boxes
• Also strong in private label
• GPA - Brazil's largest private employer, lead retailer in food and non-food. GPA is accelerating its   expansion in the face of the recession on the basis that it is cheaper to buy land now
• Via Varejo - 26% market share with an excellent distribution network
• Grupo Exito – strong runway in Urugay and Colombia
• Big C - Thailand and Vietnam with half of EBIT coming from shopping mall rents

Best way to play all of the above: Rallye SA (EPA:RAL)
• Holding company used by Naouri to control Casino
• Trades at 30% discount to its NAV and represents a leveraged way to invest in casino
• Trades at €36, NAV €52 and Marcelo’s price target is based on a €120-150 NAV

Be sure to check out the rest of the Value Investing Congress presentations here.

Wednesday, September 10, 2014

Lee Cooperman's Value Investing Congress Presentation: Are Equities Still the Best House in the Neighborhood?

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Lee Cooperman of Omega Advisors who presented: Are equities still the best house in the financial asset neighborhood?

Lee Cooperman's Value Investing Congress Presentation

• Market is fully / fairly valued. There is time and price left in us equity bull market and a respectable  S&P return expected in 12-18 months. Repeated the caveat that a geopolitical event could upend this prediction

• “Bear markets are born in despair, grow on skepticism, mature on optimism, die on euphoria.” ‘08/’09 was deep pessimism, have seen skepticism lately but we are near the end of that  now. Sees few signs of euphoria

• Nearly all us fixed income securities w/ exception of structured credit are uninteresting and   unattractive. This includes treasuries, investment grade corporates, HY bonds and soverign debt

• Equity markets in Europe and Japan should deliver respectable returns over coming year, could   outperform us as they are further behind in business cycle. Japanese valuations are attractive   because they have a comparable dividend yield but sell at 13.6x P/E vs. 16.8x P/E in US

• Dollar should be a strong currency over coming year

• Looking at average cycles:
o Bear market of ‘09 was 2x the average bear market, down -57% vs. -26% average. Also lasted 17 months vs. 13 month average
o Recession duration also prolonged and deeper than average. The average recession is characterized by -2% GDP and lasts 10 months.  In the '09 recession, GDP declined -4.3% and lasted 18 months
o Average recovery lasts 60 months and we are on slight overtime at 63 months today. 
o Market peaks about 7 months prior to economic peak. Thinks we don't have recession in 2015 so doesn't see a market peak today
o Cooperman thinks this recovery has the potential to exceed the average because so many companies were operating below potential

• Reason for caution:
o Seeing a lot of capitulation from the permabears, now hearing 3,000 S&P predictions from holdouts.  People waking up and getting bullish now are making a mistake
o Getting a little nervous that so many people who couldn’t see the positive outlook a few years ago now see such good opportunity
o Reiterated geopolitical risk multiple times
o Very concerned about income disparity in the economy. 75mm youth around the world are unemployed.  In the '40s an average factory worker made 1/30th of a CEO, now 1/900th
o Next crisis will be in public sector fundings. US government has $17tn debt with an average maturity < 4 years.  Meanwhile corporates have high liquidity and the banking sector is so highly regulated these days that a crisis probably won't come from them
o Another risk: recession/deflation in Eurozone or US
o Stocks also aren't really cheap – showed Buffett’s favorite stock valuation chart

• Regarding rising rates:  o If Fed doesn't raise rates, we have a problem in the stock market. If cash belongs at 0% and govt belongs at 4%, you shouldn't be making 15% in the stock market.  Rising rates should be indicative of an improving economy
o 1958 was the year of yield reversal when equities started yielding less in dividend yield compared to treasuries.  Now over 25% of S&P 500 non-financials yield more than 10yr note
o Relative to alternatives, equities still better. Fixed incomes just not attractive


• GARP: Actavis (ACT), Citigroup (C), Thermo Fisher (TMO)
• Income growth: Atlas (ATLS), Gaming & Leisure Properties (GLPI), KKR (KKR), Nordic American Offshore (NAO) 
• Asset restructuring: QEP Resources (QEP), Supervalu (SVU)
• High risk/high return: Altisource Portfolio Solutions (ASPS), Louis XIII (577 Hk), Monitise (MONLLN), Sandridge Energy (SD).

Cooperman's pick of ASPS was analyzed in the May issue of our Hedge Fund Wisdom newsletter if you want to play catch up on the name quickly.

Be sure to check out the rest of the Value Investing Congress presentations here.

Guy Spier's Value Investing Congress Presentation: POSCO

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Guy Spier of Aquamarine Fund who presented long POSCO.  Guy also recently released a book: The Education of a Value Investor.

Guy Spier's Value Investing Congress Presentation

The investment process:

Recognize that you're not Buffett and that you're not rational. Recognize that you can't have all the knowledge. Recognize that most "data" is noise (keeps Bberg off). Recognize own biases (presenting an idea leads to a commitment, also vividness, authority, etc.)

Build a more robust investing process: don't look at the stock price, don't buy what's sold, don't talk to management, gather research in the right order (from QnA: read hte SEC docs first because they are legal), check with others, don't trade, and if a stock drops after you buy it, keep it for two years, don't talk about your holdings. 

The idea: POSCO 

Saw it in several places so that was a check (Manual of Ideas, Munger's DJCO 13-F, Corner of Berkshire and Fairfax, SumZero competition)

Started looking at the industry: looks like it's doing poorly

Since 2004, the NI margins of the major players have been declining. Now only POSCO and Bao are above 0%.

Some irrational competition due to employment goals by various governments

Ore is getting cheaper and is very abundant in part due to new discoveries and in part due to Chinese slowdown

POSCO appears to be a low cost producer

POSCO has own port and a very large complex in Korea

POSCO has a new steel-making method that does not require coking coal (but the other ingredients matter, it's like cooking)

Solid financial performance over 20 years.  Thinks 2-3x potential

Catalysts: new CEO, divestitures, new India operation with the new technology  

 Q&A: Sold CHK because it might not be the low cost producer, not smart enough to judge

Be sure to check out Spier's new book: The Education of a Value Investor.

And also make sure to read the rest of the Value Investing Congress presentations here.

Andrew Left's Value Investing Congress Presentation: Short Zillow/Trulia

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Andrew Left of Citron Research who presented a short of "Zulia", or the combined Zillow / Trulia entity.

Andrew Left's Value Investing Congress Presentation

Shortselling in general: "I keep Xanax in business"
Shortselling in general: two types, when you need something to change vs. when you need things to stay the same (time on your side). Z is in the latter camp. 

Big disconnect between the reality of the residential real estate market (people driven; agents don't differentiate b/n various listing services) vs. the Wall Street hype. 

Business model is providing commodity information (listings) that they do not own and selling the advertising space next to it to agents. Paying agents also block other agents from being displayed on the side of the paying agent's listing. 65% of revenue is agents paying, 25% is display ads, 10% mortgage-related. Agents don't like the business model at all. 

The fundamental problem with Zulia is that the total addressable market ("TAM") is considerably smaller than commonly believed. 

Based on Citron research and certain disclosures, about 40% of the inventory is unavailable for sale. 

Zillow's low-value  "deals" with Douglas Elliman and ReMax are known but they also appear to have special terms with larger regional firms and Keller Williams.  Deals indicative that Z provide little to no value to its customers. 

These corporate deals make the full-price clients very upset; also Z has been reducing the number of protected listings a paying agent might have. 

Price target $22.50 based on comps, $42 based on a stable leadgen EBITDA business. 

Q&A: Compared to the Australian counterparts, Z has no real IP.

Q&A: Long idea BBRY. Internet of things play/secure mobile data transmission. CEO superstar. Handsets no longer a deciding factor. IBM/Apple partnership to enter space validates BBRY's business.

Be sure to check out the rest of the Value Investing Congress presentations here.

Jeff Smith's Value Investing Congress Presentation: 4 Case Studies

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Jeff Smith of Starboard Value who presented four case studies.

Jeff Smith's Value Investing Congress Presentation

Starboard Value:  80% "success" rate across its history; research shows 26.4% average (median?) returns vs. 9.7% market from when 13-D is filed.  Has placed over 100 people on various boards over 10 years.  18-24 month hold

Selection criteria to get involved:
(1) Plan to unlock value
(2) Clear path to execute (either cooperative management or ability win proxy)
(3) Company is undervalued on absolute basis 

Case study: Tessera 

Good IP licensing business for semi-conductors, good margin, some reinvestment in R&D needed
Tried licensing cell phone camera focus IP but failed bc the buyers did not want to buy without seeing it work in real life
So they build a test case but that wasn't enough
So they double-down and try to find someone to mass-produce their IP, and fail
So they double-down again, and bought a facility for $500 mm and started losing $150 mm per year 

Starboard comes with a plan to refocus the company, dump the camera business and do an overall cost reduction

Replaced the majority of the board, new CEO, sold non-core assets, reduced headcount

Interestingly, the board chairman who led the defense stayed on, and is now friendly with Starboard and can serve on other boards for them in campaigns 

Case study: Office Depot (ODP) 

Second largest office supply company; declining sales, growing overhead, lowest margins in the industry

Starboard plan: cut expenses, reduce SKUs, rationalize distribution, sell Mexico JV, change customer mix (biz vs. retail), merge with Office Max

ODP so far: new superstar CEO, new CFO, merger with OMX, sold JV, 3 new board members.

Case study: Darden 

(On-going situation which appears to have limited the details he put out: ie he did not discuss Red Lobster sale in his deck)

World's largest full service restaurant. Also a big real estate owner unlike it's peers which is an inefficient use of capital. Company runs several brands, two legacy Olive Garden and Longhorn, and smaller growth names. 

Opportunity: real estate value, operational underperformance (even worse when adjusted for non-payment of rent)

Current plan: running a board slate, implement performance plan, separate mature vs. newer concepts, explore franchising 

Case study: MWV 

Packaging conglomerate (various uses); non-core specialty chemicals and real estate businesses; run by the same family for many years (but with low current ownership %)

Very weak operating performance: both gross margins and SG&A spend are substantially worse vs. industry comps

Starboard plan: sell/spin non-core assets, reduce overhead, increase margins to comp, use of pension overfunded status in a merger  

Q&A: Good board memebers: independed, successful people who don't accept mediocrity, secure in who they are, don't "need" the board seat for income, true representatives of the shareholders, "statesmen", be willing to dissent, be willing to criticize CEO based on own industry experience

Q&A: Wilcox update: nothing to share  QnA: WPP update: has been a struggle, replaced CEO

Q&A: MWV transaction leakage: yes, a lot of tax planning will be involved; the overfunding can be used to merge with an underfunded industry competitor and receive some of the value there; reverse morris trusts or other structures in play

Be sure to check out the rest of the Value Investing Congress presentations here.

Adam Crocker's Value Investing Congress Presentation: Groupe FNAC and Molina Healthcare

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Adam Crocker of Metropolitan Capital Advisors who presented long Groupe FNAC and Molina Healthcare.

Adam Crocker's Value Investing Congress Presentation

Long: Groupe FNAC (FNAC.PA)  

• “It’s the Best Buy and Barnes and Noble of France, Spain and Portugal... what's not to love??”
• Retailer of books and electronics with stores in France, Iberian Peninsula, Brazil, other Europe. Spun out of Kering Group in 2013 with an underappreciated ticketing asset similar to Ticketmaster
• Retailer is an ok business facing challenges but incorrectly priced as if disaster were right around the   corner
• Strong and growing net cash balance provides downside protection
• Trading at under 6x EV/EBIT, but the retail business trades at more like 1.0-1.5x EBIT if you back out   value of cash and ticketing
• Thinks opportunity exists because people put in the “too hard” pile (recent spinoff, €550 market   cap, contrarian, challenging, and uncomfortable)
• Metropolitan asks themselves: Would anyone care if this business no longer existed? Their research  suggests yes, customers and suppliers would care

• Retail business:
o Leading brand in its markets, particularly France. #1 retailer of books, music, videos,   computers, photography products
o 56% of revenues were from FNAC loyalty members (similar to Amazon prime)
o 3rd most visited website after amazon and Cdiscount  
o Brick and mortar stores are actually well maintained, rare for this kind of secular decliner
o Similar to BKS, management is transitioning from books / DVDs to mobile phones, toys, and stationery.  These new products were over 10% of revenue in most recent quarter and grew 17% from Q1 to Q2 2014
o Cost rationalization by reducing headcount, rent negotiations, and consolidating back office.  Have eliminated 10% of SG&A since 2011

• Ticket company:
o 50% market share in a market characterized by high network economies of scale. Comps are CTS (Germany), Ticketmaster (US) and these companies tend to trade at high EBIT multiples.  Metropolitan thinks this business is worth 15xEBIT
o Assuming 15x EBIT at FNAC implies 225mm euro ticketing value
o Ticketing is a good business because of a low cost/benefit ratio for event promoters, secular tailwind for more live performances, and IT infrastructure is more complex than many assume (especially for larger venues)
 o Also have a retail network that gives them advantages vs competitors by driving retail traffic and cross-selling opportunities
o Positive catalysts: improved product cycle (i.e. Apple iPhone 6) or any macro improvement 

• Valuation: 
o Assuming €225mm ticket value, €250mm cash, €25mm Brazil asset gets to €500mm. Entire company trades at €550 market cap, so retail is implied €50mm value
o Retail did €50mm operating profit in 2013
o Best Buy has similar problems, trades at 8x EBIT. This would imply a €54 price target
o Major disconnect vs. peers BBY, BKS, DRTY, DXNS. These trade at an average 5.5x EBITDA while FNAC is 2.9x
o Management plan is to stabilize revenue, gross margins, and reduce inventories 3% annually to achieve 3% EBIT margins in the long term.  They have achieved the first 3 goals and are working on the 4th now.  If they achieve 3% EBIT margins, could get to €79/share (+126%)

Long: Molina Healthcare (MOH)

• Complex industry but simple story. Medicaid and Medicare have unsustainable cost trends related   to the Affordable Care Act and Molina offers a solution, particularly for those who fall under both   Medicare and Medicaid (referred to as “dual eligible care”). These “duals” are the most expensive group of beneficiaries and the government is extremely interested in seeing its programs succeed

• Medicaid trends:
o Medicaid is #1 line item in most states' P&L 
o Medicaid projected to grow 8% long term due to ACA. Managed care is taking a bigger piece of this because they have demonstrated an ability to drive equal or better outcomes at lower cost than the government-run alternative
o What is Medicaid managed care? Insurers manage health benefit of low income patients on behalf of state payors in exchange for per member per month (PMPM) fee.  Save the system money by standard blocking and tackling (incentives for healthy pregnancies, encouraging the use of primary care physicians, the use of generic drugs)
o 75% of Medicaid members in managed care, but most expensive patients are typically fee- for service. This is the opportunity for Molina
o “Actuarial soundness” concept - by law, rates must be adequate relative to Molina's risk

• Question is when, not if, Molina earns a reasonable profit on new membership, particularly for  the “dual eligibles”. Unless you think the government is already maximizing efficiency of those under dual  eligible care, there should be opportunity for Molina

• Why the opportunity? Perceived risks - difficult to predict short term cost trends, political risk /   government seen as unreliable customer, dual population never managed before, costs uncertain

• Big uncertainty is “What will the cost be of managing dual eligible members?” Molina hasn't   discussed their expectations but comps have

• Management thinks they can double revenue from FY13 to FY15 from $6.6bn to $12.5bn

• Sees takeout option for a commercial insurer (when Wellpoint bought Amerigroup, the merger   proxy discussed opportunities for insurers to serve dual eligible beneficiaries)

Be sure to check out the rest of the Value Investing Congress presentations here.

Alex Roepers' Value Investing Congress Presentation: 5 Long Ideas

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Alex Roepers of Atlantic Investment Management who presented long Triumph Group, Sulzer, Owens-Illinois, Technip, and Koito Manufacturing.

Alex Roepers' Value Investing Congress Presentation

Takes minority positions for 1-2 year hold period. Longs represent 2-7% equity stake in the company  to become actively engaged shareholder. 95% batting average with their core longs. 

Because so concentrated, tend to trade around positions over time. Found that ~20% of returns come from trading around the positions and 40% of outperformance over benchmark is due to trading around positions.  

Sticks to his knitting: sustainable competitive advantage, predictable cash flows, low cyclicality,   strong balance sheet, low insider control, solid trading liquidity

Since they try to effect change, they see high insider control as an impediment so they avoid those types of names.  Avoids >$30bn mkt cap and <$1bn. Atlantic doesn’t believe they provide differentiated view on mega cap blue chips.  Also avoids areas of idiosyncratic risks (tech obsolescence, product liability, government intervention (utilities, cable TV), and lack of transparency (banks, brokerages, insurance).  Target scale-in price of 7-8x EV/EBIT. 12-24 month hold. Scale out at least +50% upside at 10-12x EBIT.  Mentioned that they are constructive on Japanese equities in next 3-8 years

Recap of ideas presented last year:

• Baker Hughes: Up 37%, still a buy at $65 with a $90 target. Atlantic is still holding

• Faurecia: Auto supply company. Peugot owns 51% but only represents 11% of sales. Fast growing   Asia component. Up 22%, is an “absolute buy” at €27 w/ €40 target. Atlantic is still holding

• Itochu Techno: Up 31%. Atlantic is still holding

• Lanxess: Specialty polymer company. Sold it a few months after recommended at no gain. Timing   wasn’t right, but they continue to watch

• Harman International: Largest maker of infotainment systems or the “integrated brain” of cars. Has   >4,500 patents, sees as takeout candidate. Trading at 10x EV/EBIT on FY2016. Thinks it is worth   $200-250/share (KKR got approved for $150/share takeover before crisis and company is worth   “multiples of that” today). Up 70% and still holding

5 New Ideas:

1) Triumph Group: Aerospace supplier of wing assemblies, actuators, etc. Basically a rollup of niche suppliers to major companies including Boeing, Embraer, etc. 

o Thesis: Earnings stabilization and a return to growth. Management is focused on new business opportunities.  Doing well with small bolt-on acquisitions and has a strong barrier to entry due to FAA / etc regulation.  Also a takeout candidate  
o $3.6bn mkt cap, 10x P/E, 8.4x EV/EBIT. Price target based on 11x FY2016 EBIT (+43%) 
o Bought in low $60s

2) Sulzer: Pump business similar to Flowserve in the US. Also have chemtech and rotating equipment  services. These are “mission critical systems” and 44% of the business is after-market products

o Thesis: Management vacuum created a buying opportunity. New chairman was Chairman & CEO of Siemens.  Roepers expects company to set new targets in 2 months, thinks we will see margin improvement and the company has a strong balance sheet while you wait  
o €4bn mkt cap, 9.2x EV/EBIT. Price target of CHF 165 (+35%)
o Peers trade in mid-teens EBIT multiples. LT upside CHF>200

3) Owens-Illinois: Glass maker, sounds boring but has a huge moat and balanced sales in US, Europe,  LATAM, & APAC

o Thesis: Monopoly or duopoly in all of their markets. Noise created when Chavez appropriated 2 plants and they had some logistical challenges in US.
o Legacy asbestos liabilities also create noise but are actually an opportunity (to be successful as an asbestos claimant, need to have been working in 1958 and there aren't many of those left).  Annual asbestos payments of $150mm/yr, going down 5-10% per year. This is a positive catalyst and a finite issue. $350mm of FCF is after $150mm, so this reduction   represents a built-in FCF growth of 3-4% per year
o $7.2bn mkt cap, 10x P/E and 9x EV/EBIT
o Price target of $50/share (+62%) based on 15x 2015 P/E multiple on $2.80-$4.00 of 2015 EPS 
o At $31/share today great risk/reward

4) Technip: Oil services company (64% subsea, 36% onshore/offshore). 54% market share in subsea.   Subsea involves gigantic reels of flexible pipe. They sell these pipe services by the foot and charge   exponentially more as you go deeper for their installation services. 

o Thesis: As low-hanging fruit of subsea oil plays have been plucked, E&P companies have to go deeper.  2015 profits will be higher than market realizes.
o High barriers to entry and high-quality management team
o Petrobras has also caused noise, but interestingly Petrobras stock has since recovered while Technip hasn't
o €15bn sales, trades at €9.9bn EV and 6.9x EV/EBIT
o Price target of €105 (+49%) based on 11x 2015 EBIT 

5) Koito Manufacturing: Largest maker of car lamps including LED headlamps. Toyota owns 20% of the  company and represents 30% of sales. Japan and China are its biggest markets

o Thesis: Ride wave of adoption of LED headlamps. In Japan LED headlamps went from 0% to 15%, still just 1% in Europe / US.  Also potential spinoff of KI holdings (maker of airline seats).
o Also a huge beneficiary of Abenomics. Has a history of poor capital allocation (20% of market cap is cash)
o $7.1bn sales, $3.1bn EV priced at 5.4x EV/EBIT
o Price target ¥4,200 PT (+48%) based on trading at 6x EV/EBIT. Thinks it can get to 9x 2017.

Be sure to check out the rest of the Value Investing Congress presentations here.

Whitney Tilson's Value Investing Congress Presentation: Short Exact Sciences (EXAS)

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Whitney Tilson of Kase Capital who presented various short ideas.

Whitney Tilson's Value Investing Congress Presentation

Presentation has 4 parts: lessons from a dozen years of short-selling, update on 2 short ideas (LRN and LL), and a new short idea (EXAS)

Why short-sell?
Insurance (but made for painful 2013-14): pays when you need money to buy cheap good companies in big declines
Plentiful opportunities now (shortsellers run out of town: shops closing, long only launches)
Can make money
Can provide funds to buy more longs
Keeps him from messing up the longs
Big rush from winning/intellectually satisfying
Most HFs are expected to short

Finding ideas:
- Other short sellers
- Conferences
- VI Insight, VI Club, Seeking Alpha,  SumZero, Activist Shorts, Citron, Screens
- Media (look for hype)

Right now seeing incredible shorting opportunities
Be very diversified: has 50 shorts now
Offset longs and shorts (match cap/industry and the way they trade: tough to run long PG BRK and short volatile small names)

Lesson: stock follows earnings = reported results have to start showing cracks (example MBIA took a while)

Lesson: avoid "beat and raise" names = runaway trains (examples PCLN TRIP FB LNKD)

Lesson: be patient, wait for a break (example shorting CROX too early)

Lesson: look for Titanics, mortal damage but taking a while to sink (LRN, NSR, HLF, WRLD) 

Lesson: look for obvious bubbles (3D names, PLUG, Ballard, SaaS, biotechs) 

Update on K12 (LRN) Short
Losing their largest EBITDA contributor in PA (downgrade this morning)
Likely- per his contacts- to lose several other contracts in the next 1-1.5 yrs
Doing bad things, like enrolling no-shows and billing
Still overvalued

Update on Lumber Liquidators (LL) Short
Still many ways to win
Business performance is poor (dropping SSS)
There might be news on the formaldehyde end (not in deck)

New Short Idea: Exact Sciences (EXAS)
New colon cancer test: essential to detect early
Company has long history of failure, the new test is FDA approved
The "superior" results were rigged
Essentially a binary outcome based on reimbursement rate decision
Even if high price approved, it will fail in the market = requires filling up a cup with excrement vs. just swipe
New technologies coming (ie pill cameras) 

Q&A: Why short at all? Munger quote from a private meeting "every guy has to learn for himself [not to short]"

Q&A: Are you still in CALL? Yes but two Qs of bad prints so less enthusiastic now.

Q&A Options? "Options are heroin. They feel so good and they kill you." Now only two positions, LT ITM call on CP, defacto a stock position. Puts in IOC.

Q&A: VIPS? Got in at 80, covered at 120. Analyst called him after a visit in China: it is a real business and it grows at the rate chinese internet cos are growing, nothing suspect.

Q&A: IOC: not a great short now because of the Total partnership. Will take a while to see if the gas is extractable, Tilson does not think so.

Be sure to check out the rest of the Value Investing Congress presentations here.

David Hurwitz's Value Investing Congress Presentation on Korea

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is David Hurwitz of SC Fundamental who presented "activist investing in Korea".

David Hurwitz's Value Investing Congress Presentation

• Has been investing in Korea 7 years. Sees compelling valuations (0.5x P/BV, low single-digit P/E,   discounts to net cash and profitable with good ROEs)
• Numerous Korean stocks present extremely compelling value opportunities. Valuations and   environment remind him of US in the late ‘70s / early ‘80s. Korean shareholders are beginning to   vote against management when economically beneficial. Potential to unlock shareholder value with   activism

• Korea is misunderstood:
o 15th largest GDP in the world. $1.35tn market cap is the same as Germany and bigger than Hong Kong.  Country has had a budget surplus in 9 out of the last 10 years and public debt/GDP is among the lowest in developed economies.  Also has a strong rule of law
o KOSPI trades at 30% discount to S&P on P/E basis, 54% discount on P/B. Lots of these companies are overcapitalized
o In 2006, Buffett said that if he had to start his partnership again he would start by being 100% in Korea
o Korea is NOT Japan. It has made a concerted effort not to follow Japan’s economic plan.  In Japan, you can buy "30 cent dollars" but you have terrible ROEs while you wait for something to happen.  In korea, ROEs of double digits are the norm
o In last few years, crazy announcements from North Korea presented great buying opportunities but not really anymore

• Interesting minority protections:
o Some great minority shareholder protections have developed in Korea but they go relatively unused
o A small amount of money can go a long way. For example, you can get a shareholder proposal with 1% of shares.  With 3% of shares, you can get a seat at the table at the Board of Directors by pushing for a statutory auditor.  Statutory auditors are supposed to make sure that a Board of Directors is doing its duties properly
o Insiders own 15-40% of companies. Controlling families often have their entire livelihood tied to these companies doing well
o Shareholder returns are not high on the list of management priorities but ROEs are still quite good

• Korean government is thinking a lot about what to do with excess cash on corporate balance sheets.   Considering lowering taxes on dividends and taxing excess cash at corporations, though Hurwitz   doubts the latter happens 

• Issues: All but largest companies don't report in English. Also need a trading ID. Low volumes,   opaque holdcos. Accounting change from Korean GAAP to IFRS is challenging to make comparisons over time.  Bloomberg numbers tend to be wrong, particularly for cash, preferred stock, treasury stock, minority interest.  Drew Kim of Samsug Securities is good source for ideas if you don't speak Korean

Long: Samho Development (010960)  

• Primarily government work constructing sewers, highways, etc. with the gov't representing 90% of   revenue. 15+ consecutive years of profitability
• Pullback on capital projects has depressed earnings. In the same time frame, the market has lost   dozens of competitors
• Cash and equivalents 106% of market cap. 50% price to book. 5 year avg ROE is 12%
• Valuation at purchase (September 2013): 6.3x P/E on depressed earnings. shares peaked at   ₩12,000 now ₩3,000
• Issues: large cash pile, invested some in biotech stocks / VC and even started a money-losing asset   management business
• Progress: passed board resolution to repurchase shares. Exited biotech investments. Reviewing   dividend policy, and sold asset management business. Earnings likely close to bottom of cycle 

Long: KTcs Corp (058850)  

• Call center services, 411 directory services, and ad-based revenues. also resell services by Korea   Telecom
• Valuation at purchase (September 2013): net cash 76% of market cap
• Issues: large cash pile, bloated cost structure. 411 business secular decline, controlled by Korea   telecom 18% owner)
• Progress: local shareholder asked for higher dividends, board seat, statutory auditor. CEO purchased   shares, promised more transparency and accountability
• Hurwitz thinks Korea Telecom should decide what it wants to do with this. Would be a good buy for PE investor

Be sure to check out the rest of the Value Investing Congress presentations here.

SumZero Contest Winner at Value Investing Congress: Long Samsung

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is the winner of the SumZero International Ex-US stock competition who presented long Samsung.

SumZero Contest Winner: Value Investing Congress Presentation

Employer focus on: cheap, honest/good managers, dominant market position, global brands, strong balance sheet

The pitch is basically sum of the parts (SOTP)
(1) Misunderstood: a lot more than handsets
(2) Just the semiconductor business is worth more than what the entire co trades for//discount for whole biz is 50%
(3) Global leader in  a number of products
(4) Several catalysts: asset sales, succession plan, restructuring and buybacks
(5) Solid management

Downside thesis is very short term
(1) No growth in smart phones
(2) Chinese competition
(3) Copy-cat products
(4) Not shareholder friendly

SOTP: cash + semi + display + home appliance + IT/mobile = 149% upside 

Solidly run business: vertical integration, low cost, R&D and ad spend

Catalysts: unit IPOs, 2015 expiration of tax incentives to simplify structures

Recommends reading The Samsung Way

Can buy in Korea (have paperwork to fill out = barrier), likes the preferred there

Q&A Other Korean preferreds are irrationally cheap (Tilson likes them too, has several; also has Samsung common and preferred)

Q&A Family incentive to keep the prices low? Should end soon.

Q&A: Also owns POSCO, reads Korea Times

Q&A: Not afraid of Chinese competition

Be sure to check out the rest of the Value Investing Congress presentations here.

John Lewis' Value Investing Congress Presentation: Long ePlus & Rosetta Stone

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is John Lewis of Osmium Capital who presented 2 ideas: E-plus and Rosetta Stone (RST).

John Lewis' Value Investing Congress Presentation

Osmium: concentrated (85% top 10), $100 mm - $1 bn market cap, 2-4 year hold

In the office has Wall of Fame and Wall of Shame

The Osmium 8 of how to create value, assess the quality of the business and understand incentives/cap structure
(1) Low valuation: low to MSD OCF multiple
(2) Can it continue to produce cash flow
(3) Double barrel deployment: reinvest in the business and buy back shares to create value
(4) Porters 5 forces
(5) User experience/LT client relationships
(6) Quality attributes 10%+ pre-tax margins, decent ROIC
(7) BS strength
(8) Management ownership

One-pager case studies VITC Vitacost- sold to Kroger for 50% gain
ZIPR Zip realty sold to Realogy for 90% gain
LOV Spark Networks- on-going engagement

First Idea: ePlus (PLUS)

A long term compounder in the IT space
High margin revenues, very sticky, low valuation 40% discount to peers 
Debt has to be adjusted for non-recourse piece
Have been repurchasing shares
Diverse customer base
Will grow revenues with existing and new clients as they sign up new partners 

Second Idea: Rosetta Stone (RST)

Two activists now involved
Very seasonal, high margins
Lots of capital to reinvest
Really nice educational institution products suite
New acquisitions in EU  Stock is very cheap, one of the cheapest software stocks
Problems: no strategy to create value (sounded like too much R&D), no urgency, no segment reporting (consumer vs. education), seasonal (consumer is all Q4, education Q3)
SOTP is $20-$35 based on Osmium, CEO's own estimates and Private Equity buys in the space.
Cheap even with Consumer at zero.  

Q&A: Free apps? They made a freemium product acquisition so they are in that. Berlitz is still making good money (language instruction is not dead).

Be sure to check out the rest of the Value Investing Congress presentations here.

Cliff Remily's Value Investing Congress Presentation: Subsea 7

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Cliff Remily of Northwest Priority Capital who presented Subsea 7.

Cliff Remily's Value Investing Congress Presentation

Nice bio: was at PIMCO equities. Traveled a lot "hospitalized on 3 continents", once detained in China.

Think of value as a continuum: must have some of each in the portfolio
Absolute value = the uglies, very deep value, hard to find
Basic value = cyclicals, out of favor but beware of value traps
Value compounders = great businesses but not cheap most of the time
Emerging leader = businesses that might have a lot of optionality that is not recognized by the market, volatile, expensive 

Idea in Basic Value: Subsea 7  

Largest pureplay engineering and construction company in offshore oil and gas: big barriers to entry, big long-term shareholder  Trades cheap to industry

Market segments: deepwater design/build the things under the platforms; maintenance, shallow water pipelines, remote subs

The industry is OK: secular growth, barriers to entry, 2-3 large players, strong balance sheet, mispriced (everyone hates the North Sea; had write-offs in Brazil)

Profitability in line with industry, valuation way under. 

Range $10-$13-$22-$28-$37. Worst case estimate is at $75 brent oil

Q&A: oil estimates Brent at $100 for base case to estimate willingness to spend on capex
Q&A: Transocean business %? Does not know.

Be sure to check out the rest of the Value Investing Congress presentations here.

Monday, September 8, 2014

Bridger Capital Boosts Accuray Position

Robert Mignone's hedge fund firm Bridger Capital has filed a 13G with the SEC regarding its position in Accuray (ARAY).  Per the filing, Bridger now owns 5% of the company with over 3.88 million shares.

This marks an increase of 884,853 shares in their position size.  The filing was made due to activity on August 28th.

In other portfolio activity, Bridger also recently added to another holding.

Per Google Finance, Accuray "manufactures image-guided radiosurgery devices. The Company is based in the United States and its core product, the CyberKnife Stereotactic Radiosurgery System, combines image-guidance with robotics to offer unparalleled flexibility and accuracy. Accuray's focus is to revolutionize the treatment of solid cancers throughout the body by the precise delivery of high doses of radiation using the CyberKnife Stereotactic Radiosurgery System."

JANA Partners Trims QEP Resources Stake

Barry Rosenstein's activist hedge fund firm JANA Partners filed an amended 13D with the SEC regarding their position in QEP Resources (QEP).  Per the filing, JANA now owns 7.2% of the company with just over 12.9 million shares.

This means they've reduced their stake by around 2.3 million shares since the end of the second quarter.  The filing was made due to portfolio activity on September 3rd.

JANA's filing notes that they "reduced the size of its investment ... through regular portfolio management activities."  They also say they're "highly supportive of the recent steps taken by (QEP's) board and management, including (QEP's) announcement of the separation of its midstream business and the addition of a board member with midstream energy expertise to assist with the separation."

You can check out more recent portfolio activity from JANA Partners here.

Per Google Finance, QEP Resources "operates in three lines of business: gas and oil exploration and production, midstream field services, and energy marketing. It conducted through three principal subsidiaries: QEP Energy Company (QEP Energy) acquires, explores for, develops and produces natural gas, oil, and natural gas liquids (NGL); QEP Field Services Company (QEP Field Services) provides midstream field services, including natural gas gathering, processing, compression and treating services for affiliates and third parties; andQEP Marketing Company (QEP Marketing) markets affiliate and third-party natural gas and oil, provides risk-management services, and owns and operates an underground gas-storage reservoir."

Marcato Capital Sends Letter to Life Time Fitness, Proposes Separation of Real Estate Assets

Mick McGuire's activist hedge fund firm Marcato Capital recently filed an amended 13D with the SEC regarding their position in Life Time Fitness (LTM).  Per the filing, Marcato continues to own 8% of the company with approximately 3.1 million shares.

Marcato's filing includes a letter to Life Time's Chairman commending the company for exploring a potential REIT conversion.

McGuire writes, "In our opinion, many investors and analysts do not fully appreciate the transformational nature of the Company's announcement.  Based on Marcato's analysis, at the mid-point of our valuation range, we believe the shares of LTM could reach $70 per share upon separation of the Company's real estate assets."

We had previously highlighted how Marcato increased its Life Time Fitness stake this summer and now they're taking things a step further.

Embedded below is the full letter to the board as well as Marcato's presentation on valuation: